What To Do With Google and Apple's Billions - Creative Arbitrage

It might sound perverse to say it but companies like Apple and Googlehave outgrown their ability, to some extent, to.... grow. Let me put that another way because clearly both have a good profit profile.

In a balanced economy companies make surplus profits that they then invest in new productive capacity, and what's left over they distribute as dividends to shareholders.

We've clearly reached a point where the productive investment part of this equation is not working. Both Apple and Google sit on cash they just cannot or will not spend.

But it is not just a problem of titans like Apple and Google both of which have significant cash piles that they cannot invest (and in Apple's case are having to give to shareholders much more than they would like).

More generally companies are finding it difficult to make the right investments in the next phase of their growth.

That is extraordinarily apparent in the case of Apple. But Malcolm Frank, SVP at arbitrage specialists Cognizant, reports something similar across the company's client base (transparency declaration - Cognizant fund a future of work project that I am authoring).

Cognizant has just reported another good quarter but underlying continued growth is a shift in how the company makes its money. As Frank puts it "intellectual arbitrage" is replacing "labor arbitrage."

I prefer the term "creative arbitrage", being able to access and leverage creative people whose core experience and value increases, the more times they engage in assignments.

Creative arbitrage is as important as labor arbitrage used to be. For me it began back in the P&G Connect and Develop days when P&G began going outside the walls for inventions and ideas. It gained pace with open innovation and then crowdsourcing. And now it is becoming more service-based.

Cognizant used to make the majority of its money from outsourcing labor. Increasingly (to the tune of about 50% of its revenues now) it is earning revenues from helping companies to innovate, particularly around social, mobile, analytics and Cloud.

"Client are asking, how do I re-imagine and re-architect for areas of the business?" says Frank, "and I'd say about 60% of our top 100 clients are spending money on this."

The reason they are going to Cognizant and similar companies is different from the old labor arbitrage days. It's not to lay work out to an outside agency with a lower labor cost base. It's simply because they cannot access the employees or the experience of transition that they need.

Think about this for a second. Last year Cognizant had 100 recruiters on the road in the USA and were unable to fill many of their own positions. It seems like even the creative arbitrage route is not without its hurdles.

But the message is simple. Companies are gearing up for transformation and their main barrier is a shortage of creative people capable of quickly building experience in new business infrastructure technologies and the solutions you can build around them.

The problem for Apple and Google is slightly different. There is a management mind-block around the challenges they can legitimately tackle.

Google's foray into driverless cars is a good example of the search giant unblocking its vision and going for a moonshot. But there are plenty more out there that it would spend money on.

Likewise Apple. The world's best UI designers whose devices are carried everywhere should take on more and bigger challenges around the world. The blockage is as trivial as saying, we don't think we can. Meanwhile Korean and no doubt soon Chinese manufacturers are over-running Apple because of its lack of breadth.

They both need more creative arbitrage. And the markets need to recognize that long-term creative arbitrage projects involving open or closed communities, tackling large economic challenges across the globe, are one of the few ways the surplus capital problem can be solved.